If you live in Boulder, you’ve almost certainly noticed the construction along US-36 — aka the Boulder-Denver Turnpike. The main thing that’s being built here is one new lane in each direction. However, it’s not your average road-widening project. Usually when additional capacity is added, it’s rapidly consumed by induced demand. Instead, the two new lanes are going to be special managed lanes. What does that mean?
These new lanes are going to be optimized for mass transit, in this case buses. It won’t quite be Bus Rapid Transit (BRT), in which the lanes are used exclusively by buses, passengers pay on the platform, and board like you would on a subway or light-rail line. The US 36 system will be somewhere between that and the express service that we’ve got now. Even at peak hours, when buses are departing every 3-5 minutes, there will still be a significant amount of spare capacity in the managed lanes. This capacity will be made available to high occupancy vehicles, and those that are willing to pay a toll. There may also be a number of permits issued for electric vehicles, though how that would work remains to be determined. The toll value, the number of passengers required to be considered “high occupancy” and the number of EV permits that might be issued will all be managed to ensure that the buses go at least 50 miles per hour. The two general purpose travel lanes in each direction will remain free to everyone.
Why not just build more lanes for everyone?
Creating managed lanes will make the bus trip between Boulder and Denver take about 24 minutes — even during the peak morning commute — compared to 52 minutes in the general purpose lanes before project construction began. If you’re doing a round-trip commute, that’s almost an hour of your life each day, or 250 hours per working year. Why should we give the bus this advantage?
The buses should get priority because a bus full of people uses much less road per person than a bus worth of cars does. This is important, because road space is a limited, expensive commodity. By allocating it preferentially to those who use the road efficiently, you ought to need less road overall to provide a given overall quality of service.
“Fine, but I’d rather just have the free 10 lane superhighway that was originally envisioned 15 years ago under Gov. Bill Owen.”
First of all, that would be crazy expensive. With three times as many additional lanes (6 vs. 2) I’m gonna go out on a limb and guess it’d be something like 3 times as expensive (i.e. billions). Second, it probably wouldn’t improve the service in the long run, because additional road capacity tends to fill up very quickly as people realize they can drive further in the same amount of time.
That’s how cuddly little 10 lane freeways like this:
Turn into tentacled monstrosities like I-10 in Houston:
To avoid that fate, if we want to expand capacity on US-36, we need to add a different kind of capacity, that’s specifically managed to efficiently move people without inducing demand. That’s what the buses in the managed lanes do. At least initially, the buses alone won’t use all the capacity available in the lane, so we can still let other people use it, as long as there aren’t so many of them that the managed lane starts to grind to a halt too. We can wield this additional capacity to encourage more efficient use of the limited resource, by allowing carpools for free. But we can’t allow too many of them, or the managed lanes lose their advantage, so probably we’re going to need 3 people, not 2 per vehicle. We can also use the capacity to incentivize other transportation changes, like a shift to electric vehicles, up to a point. Finally, we can use it to generate revenue with tolls for those who want to pay for access, and fund a big chunk of the project with that revenue stream.
For all these reasons, the “preferred alternative” for the corridor has looked very much like what we’re now building for some time, even all the way back in 2009.
So what about the funding? Why can’t we just build it?
First of all, the state is broke — especially the DOT. Second of all, we (the people) have said pretty clearly that we are not interested in funding our transportation infrastructure with any kind of tax. Third, if we want to allow people other than transit, HOVs and EVs to use the managed lanes, we have to have some way to regulate how many of them there are. The obvious way to do it is with congestion pricing (varying the toll to be higher during peak hours, and lower in the off hours). So why not use that money to fund the project? After all, it’s a lot fairer than, say, a dedicated sales tax.
How broke are we? CDOT estimates that it has about an $800M annual budget shortfall, relative to what would be required to maintain our existing infrastructure, continue to improve “safety” on rural roads, and provide “congestion relief” (see this Denver Post article from fall 2013. I’m using scare quotes because I doubt that I agree with CDOT on what safety and congestion relief look like.) Their current annual budget is about $1.1B. So the shortfall is almost as big as the budget! How can the shortfall be so gigantic?
Partly, it’s because of how we fund infrastructure in the US. The federal government kicks in the majority of the money for new construction, but leaves all the operations and maintenance (O&M) up to the state and local governments. Unfortunately, most state and local governments do not ensure that they have sufficient ongoing revenues to fulfill those O&M obligations. They see free federal money to build stuff, and they build stuff. Over time, the O&M obligations pile up, first dominating and then outstripping the state and local DOT budgets. When local governments then decide to fund ongoing O&M of existing infrastructure by building out yet more sprawl with federal funds… well, then we’ve got ourselves an infrastructure Ponzi scheme far grander than anything even Bernie Madoff could have imagined.
In the context of our being broke, and much of the transportation funding we’ve used for the last 60 years being indistinguishable from a pyramid scheme, a coalition of all of Colorado’s counties called MPACT64 spent the last two years looking at possible funding options. A few of the results, pulled from this presentation (PDF):
- Coloradans would like to increase the transportation budget.
- State-wide Coloradans would prefer to invest in things other than road capacity.
- Colorado doesn’t want to increase the gas tax.
- Colorado doesn’t want to index the gas tax to inflation.
- Colorado really doesn’t want a (scalable, fair) vehicle miles traveled (VMT) tax.
- A (regressive, unfair) transportation sales tax polls too low (58%) to run a campaign.
- Transportation funding is not as important to people as education funding.
So, given that Amendment 66 (which would have funded education) went down in flames by a nearly 2:1 margin last fall, it’s not too surprising that MPACT64 decided in January to shelve plans for a transportation funding ballot initiative in 2014, and given that we can’t tax in Colorado without going to the polls because of TABOR, what options does this leave us with?
The obvious source of funding is tolls. They don’t require voter approval because they’re very clearly use-fees (which are not covered by TABOR). The perhaps less obvious strategy is building much leaner, much more economically productive transportation systems, which in some cases might mean downsizing and re-purposing as infrastructure comes up for major maintenance that we can’t actually afford. And that’s fine. More things like the managed lanes, and better land-use policies can let us have a very high quality transportation system that costs much, much less to build, operate, and maintain than what we’ve got today. Cities from San Francisco to Seoul have successfully removed expensive, city-damaging freeways and have ended up better places because of it. In the case of Seoul going from this:
The state could be the one to build, operate, and maintain the US-36 managed lanes, and can issue bonds (or otherwise take out loans) against the expected future toll revenues. In fact, the state is taking out loans against future revenues in this project, using the federal government’s TIFIA financing mechanism. That’s a big chunk of the money that the state is putting into the deal. The maximum loan term under TIFIA is 35 years, and there’s a limited loan-to-value ratio. So this only gets you so much money.
The private money on the other hand is equity — ownership. Not ownership of the physical highway, but ownership of part of the right to collect toll revenues for the next 50 years. Equity stakes demand higher returns, but also take on more risks — if the deal goes south, the equity gets wiped out first. The basic structure of this partnership has been known since last spring at least (see the Daily Camera from April 10th, 2013).
In the case of the US-36 deal, the tolls collected go to the following things, in this order of seniority:
- Maintaining and operating the highway.
- Paying off TIFIA and other project debts.
- Returning equity to the private partner (paying off their initial stake, or principal)
- Earning the private partner their return on equity (their profit, up to a set maximum).
- Any additional revenues get split between CDOT and the private partner, for re-investment in the US-36 corridor.
So the Public Private Partnership (P3) is a way to get additional investment in the project up front from people who are willing to take on more risk than the government, in exchange for the possibility of higher returns. If for some reason the tolls end up not covering returning enough money to the private partner, and they go belly up, the state gets the road back, along with the right to collect the tolls and the responsibility to maintain it. And this isn’t just a hypothetical… in Orange County there are several tolled freeways that were teetering on the edge of bankruptcy in the fall.
With or without the P3, toll-financing is nice because it is pretty clearly not a Ponzi scheme. There’s an ongoing revenue stream that can be used to pay off the costs of the project, which should be sufficient (based on the modeling anyway) to do so.
The revenue structure above is also nice because it limits the incentives for the private partner to want to increase the tolls (though pricing has to be approved by CDOT’s HPTE anyway) — since above their expected return on equity, additional revenues start flowing to CDOT instead of just to the equity holders. This isn’t so different from the semi-guaranteed fixed return on capital that we offer to many regulated monopolies. This business model is probably past its use-by date in the electric utility industry. In the case of capital intensive road infrastructure it can make sense, as long as we’re not building the unlimited capacity that’s required to deal with induced demand, which we aren’t with the US-36 project. Instead, the business is being rewarded for having a highly functional managed lane — fast buses, tolls high enough to pay their return, and whatever additional capacity is available allocated to HOVs and potentially EVs.
US-36 paid off its original construction with tolls in 15 years. Why is this going to take 50?
I gotta say, I’m a little bit shaky on why the term of the deal is so long. Mostly, it seems strange to me because the net present value (NPV) of the cashflows from 40 or 50 years out are basically worthless today, especially if you use equity-like returns (~10%) as the discount rate. So it seems unlikely that doing a 50 year deal rather than a 30 year deal would result in having much more capital available up-front for investment in the project, at least on the basis of future cashflows. It might be that the longer payback time offers some protection against volatility in toll revenues? Reportedly there were three bidders for the contract, so it was probably at least somewhat competitive, and it seems likely that the HPTE would have preferred a shorter payback time if at all possible, so they probably didn’t have that option, or the compensation the bidders were asking for in exchange for a shorter term were deemed unreasonable.
Why is the deal so damned secretive and last minute?
First of all, it’s not last minute. The broad outlines of the policies it implements have been known at least since last spring. Secondly, it’s not particularly secretive. God knows my inbox has been pestered endlessly with US36 Commuting Solutions newsletters and invitations to public forums in places that (ironically) aren’t particularly easy get to by transit. It’s especially not secretive since CDOT posted an 80 page outline of the contract. Admittedly, that summary should have been posted as soon as the outline of the contract was finalized.
A lot of the financial details and the negotiations around them have to remain secret for deals like this to go forward, because the entities engaged in the negotiations are competing with each other — both here, and potentially on other projects. If they have to make everything public from the get go, then that competition breaks down, and they won’t participate. If we want the private money, then we have to accept some financial opacity until the deal is done. If we don’t want the private money, that’s fine — but then we have to be willing to either fund our own infrastructure systems, or content to watch them crumble. Personally, I could be okay with any of these options done right.
Getting this kind of project done right is key — any of these financing mechanisms can work well, or be a total catastrophe if done poorly. As far as I can tell, based on what I’ve read and the people I’ve talked to who have been involved in the project for years, the financial incentives and policies built into the current US-36 project are good for cost-effective, sustainable transportation. It’s taken a decade to get here, but for once things seem to have worked out pretty well. It would be depressing to see the deal get nuked at the last minute, and even more depressing to see the misinformation floating around today stand in the way of other good deals like this one getting done around the state — regardless of how we decide to finance them.
But, Glenn Vaad! ALEC! Insert Liberal Outrage Keyword Here!
I’ll just quote Will Toor, who has been involved in all this pretty much from day one:
I would like to respond to a number of the concerns being raised about US 36, from the perspective of someone who both was involved as a local government representative when US 36 improvements were being planned, and now works on transportation policy from the environmental nonprofit world. There seems to be some confusion about what the history is.
The claims that are being made that try to tie Glenn Vaad and ALEC to the creation of the High Performance Transportation Enterprise (the branch of CDOT that can do tolling and public private partnerships) and the approval of a public private contract for US 36 are just incorrect. The truth is, the HPTE was created in 2009, as part of SB 09-108, the FASTER legislation. It was sponsored in the House by Joe Rice, and in the Senate by Dan Gibbs – both progressive Democrats, and was signed by Bill Ritter. It was a bitter partisan battle, and was strongly opposed by Republican legislators, including Representative Vaad. The bill was supported by Environment Colorado and the Colorado Environmental Coalition. Whether you like the policy or not, it is just incorrect to try to tie this to Rep Vaad and ALEC.
- A presentation from MPACT64 (PDF) on Colorado’s current transportation funding.
- A brief summary and FAQ (PDF) on the US-36 project from CDOT.
- An 80 page summary (PDF) of the concession contract for US-36 from CDOT.
- The Growth Ponzi Scheme by Charles Mahron at Strong Towns.
- Managed Lanes in Colorado by Will Toor at the Southwest Energy Efficiency Project.
Relevant Press Coverage:
- 2009-11-02: US-36 Plan Focuses on Sustainable Transportation (Boulder Daily Camera)
- 2013-04-10: Privatization of US 36 maintenance, operations launches highway into new era (Boulder Daily Camera)
- 2013-09-08: 10-year, $600 million annual sales tax for transit floated in Colorado (Denver Post)
- 2014-01-16: Statewide transportation sales tax measure MPACT 64 won’t move forward in 2014 (Boulder Daily Camera)
- 2014-02-08: Colorado Public-Private Partnership in Spotlight (Mountain Town News)
- 2014-02-09: Partnerships Complete US-36 (Boulder Daily Camera Guest Opinion)
- 2014-02-10: Contentious public-private US-36 deal to get public airing this week (Boulder Daily Camera)
- 2014-02-11: Nothing sinister in US 36 highway deal (Denver Post Editorial)
- 2014-02-12: Harsh words for CDOT at public meeting on 50-year US 36 contract (Boulder Daily Camera)
- 2014-02-13: CDOT director says US 36 contract with Plenary will close within two weeks (Boulder Daily Camera)
- 2014-02-13: CDOT beaten up in Round 2 of US-36 public meetings (Boulder Daily Camera)
- 2014-02-14: CDOT releases 600 page US-36 management contract for public review (Denver Post)